The publishing industry has been challenged by the online sales success of Amazon, the rise of eBooks, print-on-demand and most recently by self-publishing. Though the overall unit sales and book revenues for traditional publishing held up in 2012, pricing wars have accelerated. The 2013 holiday season, for example, saw bestsellers like John Grisham’s Sycamore Row discounted (in eBook form) all the way down to $3.29, as Porter Anderson notes in his story on eBook pricing.

I have written extensively on author and library reactions to this disruption, but the publishing industry itself is also morphing. A new class of hybrid publishers has emerged over the past two years to compete with both Big 5 publishers and successful self-publishers. These businesses combine traits of both traditional publishers and indie authors with a dash of Silicon Valley technology.

Though the models vary, three features distinguish some of the most successful hybrid publishers from traditional publishing and self-publishing.

#1 - No Big Advances –

While some hybrid publishers offer small advances (in the hundreds of dollars), they don’t pay advances in the manner of a Big 5 publisher. It allows these publishers to price their books more aggressively to gain market share without losing money. In return, authors earn higher royalties (though less than with self-publishing) which are paid monthly and are reportedly more transparent than standard big 5 publishing contracts.

On the flip side, most hybrid publishers don’t charge authors to publish. This gives them a marketable advantage against self-publishing or so-called ‘partner publishing’ where an author pays all of the upfront costs.

#2 – Few Salaries –

Many of these publishers operate with few salaried employees. At Booktrope, for example, a team – comprise of the author, editor, designer and marketing manager – forms to publish each new book. They’re all virtual employees, and none of them make a salary:

Everyone [the editor, designer, marketing manager and Booktrope itself] is paid via a percentage of profits. Nobody makes a dime unless the book sells. An author has a team of people who know what they’re doing but also has skin in the game.

- Katherine Sears, CMO Booktrope

Of course, nobody wants to get stuck with the revenue share of a dud, so at Booktrope the employees bid for the projects they want to work with. They also vote on which books will be accepted and their input as well as the input of a panel of beta readers helps inform the acquisition decision.

There are clearly a lot of risks to this approach and Sears and her counterparts are quick to point out that the biggest among them is that you’ll fail to sell any books at all and lose your employees along with your authors. Yet in practice, the opposite has happened. Booktrope has seen tremendous success with RiverSong by Tess Thompson that has sold over 100,000 copies along with bestsellers from A.J. Aalto and Marnie Mann.

But the success may not be accidental. Indeed, there’s a lot of it going around among the hybrid publishers. Entangled Publishing had 13 books on the USA Today Bestseller list last year and 8 of them hit The New York Times list. When I asked Liz Pelletier, Entangled’s publisher about the factors behind all of those bestsellers, one that she pointed to was the alignment of incentives:

When the book releases, we’re all motivated to make a bestseller. We’re all invested in each title. We’re also willing to go back and look at a title that’s not selling well. Sometimes the blurb isn’t working, the cover is not working, the edits are not working – or maybe the timing is not right. Right now paranormal is a very soft market but that doesn’t mean it won’t come back or we shouldn’t have paranormal titles.

The low cost structure and the entrepreneurial structure of hybrid publishers gives them another important advantage: agility. In fact, their most important tool may be their ability to mimic self-publishers in speed to market while bringing considerably greater resources to bear:

#3 Agile Marketing –

The book market operates like most other consumer goods markets. New segments emerge, expand and then sometimes implode. Big 5 publishers have long struggled to exploit growing market segments because their product development cycle operates in slow motion. Even when a manuscript is finished it often takes a year or longer to publish the book. Hybrid publishers, in contrast, turn out books dramatically quicker. Sears boasts that the window from editing to printing at Booktrope is no more than four to six weeks.

In the hands of a clever marketer, this agility pays dividends. Entangled Publishing built their business model around understanding, growing and exploiting sub-genres with multiple books and multiple authors. Pelletier told me:

I’m not afraid to try and create a trend because we can put out books very fast, faster than New York. I asked Jennifer Armentrout to write a book about aliens and high school and she was skeptical whether anyone would read it. But we supported Obsidian before it hit the USA Today bestseller list by acquiring similar books to position them to release within a similar time frame and then creating hype around the new genre with marketing and pr.

This technique of creating market concentration is an effective way for an agile brand to exploit market segments, and it’s this agility, (perhaps even more than the favorable cost structure of hybrid publishers) which has provoked Big 5 publishers to respond. Random House, for example, launched four digital imprints this year: Alibi, Loveswept, Flirt and Hydra. A negative reaction from authors and the SFWA forced them to quickly modify the terms of the contracts they were signing with authors.

Hybrid publishers may have a persistent advantage, though, because not only are they natively speedy, but they also attract like-minded authors. They draw in self-published authors looking to expand their footprint, many of whom are used to putting out multiple books in a year. They also appeal to traditional authors looking for more control and higher royalties who are already savvy in marketing books.

Imprints as Consumer Brands

If these hybrid publishers act like very clever marketers, it’s because they are. Beyond exploiting new segments, they’ve started to create imprints that are meaningful consumer brands. The benefit to the publisher is significant, because an imprint with brand equity can help sell a book by a new author who might otherwise go unnoticed.

This seems like common sense, but many Big 5 imprints have become meaningless to consumers. Little, Brown was once known for literary works and boasted authors like Louisa May Alcott and J.D. Salinger. Its bestselling author today is James Patterson. While some strong imprints survive, most have no coherent brand positioning with consumers.

Hybrid publishers are reintroducing branding discipline into the world of imprints. Entangled has thirteen imprints targeted at specific bands of readers. For Entangled, precise and compelling branding wasn’t an option, as Pelletier explained to me,

Our imprints are meant to be consumer brands. Our six category imprints compete with Harlequin and Harlequin is a genius at building brands. A brand is the best platform to launch a new author.

Branding at Entangled involves more than matching a book with the right imprint. Entangled doesn’t assume that new authors have the required skills to build their author brand – they teach it:

We bring in branding and social media experts to train our authors. Bestselling authors are great storytellers. 80% of books are still sold by word of mouth. We did market research on “The Marriage Bargain” and more than 85% of respondents said that they bought the book because someone recommended it personally.

These new publishers also use social media in more adept ways than traditional publishers. At She Writes Press, authors enjoy the rewards of a well-developed social platform. Just as Amazon helps its KDP Select self-published authors with special promotions and marketing, She Writes Press uses its progenitor, She Writes – a combination of social network and Huffington Post-style collaborative blog- to showcase and market its authors.

The Silicon Valley Answer To Publishing

The smartest hybrid publishers also use technology to enable their strategy. Booktrope even completed an Angel Funding round in Silicon Valley. Sears told me:

We view ourselves as a technology company who publishes books. That’s what will allow us to succeed. We’re not building a high-overhead business but a lean platform whose product is books.

The teams that work on each title for Booktrope have an enabling technology – a web-based platform that automates the collaborative process and the production process. Technology overhauls are notoriously difficult for legacy companies, and the astute use of collaborative web-centric systems gives hybrid publishers a stronger competitive advantage than the death of the three-martini lunch.

Challenges and Obstacles

In spite of the successes of the past two years, most of these businesses face formidable obstacles to long-term success. They enjoy neither the prestige of Big 5 publishers nor the absolute freedom of self-publishers. They are often lumped with self-publishers by major review sites. Many of the most prestigious literary awards are banned to publishers who print-on-demand as most of the hybrid publishers do (most of them use Lightning Source – owned by book distributor Ingram). There’s some irony to this, as Brooke Warner, the co-founder of She Writes notes, “The bias against POD is insane. Traditional publishers use POD for their backlists and to say that it’s okay for the backlist and not okay for the front list makes no sense.”

I am a longtime brand guy - mostly from the client side. I write mostly about smart or foolish things that brands do. I teach branding and social media at NYU and for ThirdWay Brand Trainers. Worked in marketing for Coca-Cola, Johnson & Johnson, DoubleClick and others.